T-Minus 15 Hours: The Complete Government Shutdown Summary

Presenting the full summary about the only event the market is focused on today.

MAIN POINTS:

Today sees the Senate reconvene after yesterday saw the Republican-led House voted in favour of a modified continuing resolution (CR) which includes a one-year delay to Obamacare (the Affordable Care Act). The Senate is not scheduled to meet until 1400ET today meaning that if the new bill is rejected there is not enough time to create a new CR and pass it back to the Senate before the midnight deadline, leading to a government shutdown in which all non-essential government workers will stay at home. Expectations are now that it is likely there will be a temporary shutdown given that the White House signalled the new CR would be vetoed by President Barack Obama and Democrats in the Senate immediately said the legislation approved by the House yesterday is unacceptable.

Even if there is a government shutdown, it is expected to only last a day or two and a CR is expected to pass in Congress this week, however this shutdown could lead to a delay of Friday's release of this month's Non-Farm Payroll report. This will fund the government to at least November 15th, giving more time for Congress to create a CR which extends through the entire 2014 fiscal year. Goldmans estimate a 2-day US govt shutdown will hit Q4 GDP (annualised) by 0.1 percentage points and one week by 0.3 percentage points, however the more important issue for Congress to address will be the debt ceiling as the US is expected to exhaust borrowing capacity on October 17th.

One main concern of a delay to both a 2014 budget and raising the debt ceiling is the possibility of a credit rating downgrade of the US sovereign, although overnight Moody's said that a government shutdown wouldn't affect debt service and that a debt cap failure would lead to perceived default risk and that failure to raise the debt limit is worse than a shutdown.

It is worth bearing in mind that several members of Congress are likely to speak to the press throughout today as they arrive for discussions and the Senate vote, and as is often the case, any deal between the Senate and House is likely to be either overnight or within the next two days. Although a US government shutdown is a risk event for financial markets, many analysts have noted this week's voting is overshadowed by debt ceiling negotiations which will begin shortly after. These talks will have a much greater impact on market sentiment as a delay to increasing borrowing capacity risks a US default as the worst case scenario.

EVENTS OVER THE WEEKEND:

Shutdown seen as unavoidable without talks

U.S. 4Q GDP seen reduced by as much as 1.4 percentage pts. depending on shutdown’s duration

Latest House plan authorizes 10 wks of spending starting Oct.1 only if most provisions of Obama health law delayed a year

Senate Democrats, President Obama say they will reject any measure that includes provisions tied to Obamacare

USD begins week buffeted by increasing possibility of U.S. government shutdown

TRADING RECOMMENDATIONS BASED ON DEBT SHUTDOWN CATALYST:

Barclays

Go long USD/CAD 2w2w FVA; relatively low USD/CAD volatility and its exposure to U.S. economic outlook make this an attractive hedge against U.S. political risk from debt-ceiling negotiations and a potential spike in market volatility

Credit Agricole CIB

Risk aversion is rising, U.S. equities and USD are falling

Near-term prospects for USD are bleak, with limited potential for any upside unless budget deal is reached; safe-haven currencies, in particular JPY, will be buoyed in this environment

In terms of high-beta currencies including Asian currencies, any positive impact from the fact that U.S. yields are capped will be outweighed by rising risk aversion leaving most Asian currencies vulnerable

Bank of Tokyo-Mitsubishi UFJ

If no resolution is reached, partial govt shutdown will kick in on Oct. 1, which could prompt USD selling against majors although stronger against Asia

Beyond govt shutdown, bigger issue is how they move toward debt limit when govt runs out of cash on Oct. 17; under such circumstances, BOT-Mitsubishi UFJ’s one-week USD/JPY forecast is a wider 96.50-100.00 on safe-haven JPY bids

Westpac

Expects USD to continue to trade on the “backfoot” vs its peer core currencies during a govt shutdown; event risk early in the week is negative for USD

Failure to raise debt ceiling would mean the U.S. govt must pay all its bills out of current revenue, risking default and downgrade and probable chaos in markets

If the there is a government shutdown, many market participants should run roughshod over many rules and laws designed to protect the investing public. With the SEC and other government agencies running a skeleton crew, imagine what many bankers will try to get away with. It could be financial anarchy!!

So what really happens if there's a "shutdown"? The budget has to be balanced in a hurry if they don't come to an agreement.

So, if it doesn't happen, what will they cut? Fixed income like welfare, pensions, or food stamps? Hmm, no, they don't like being pitchforked by hungry homeless with nothing left to lose. Military wages? No, they need protection incase people show up with pitchforks. "Critical services" like domestic spying? No, for the same reason they won't cut military wages. Lay off employees or sell off buildings? No, they need the support of all the friends they gave jobs to keep moving up the ranks. What's left then?

- capital expenditures, from replacing fleet vehicles, to new military weaponry, to toilet paper and everything in between

- all but the bare minimum contributions necessary to keep social security and various pension funds going

- non-critical services that don't turn a profit, the absense of which will piss off the voters, causing them to pressure their congressmen to please spend more

I finally read on KWN the idea i've been spewing for some time. China and US are in on the suppression and it's because China is stocking up and getting gold on the cheap. The US is going along with it because they know that's the only thing stoping China from dumping US paper. This is so simple my 9 year old could see it. Jesus, they have people with signs on the sidewalks trying to get you to sell your gold to this store that just popped up for the sole purpose of buying your gold. They do not sell, i've checked. Are you people kidding me? Where the hell do people think all of this gold is going?

The world is broadening: to fail to heed the build up of power in the Asiatic nations that the multinationals helped fast forward by offshoring America's manufacturing and intellectual base to achieve it, is to ignore, as does the Congress, that China, now Communist, could again be the power it once was and that America and freedom would atrophy and die.

Louis L'Amour writes:

"Seneca had made fiery speches in the Roman forum protesting the adverse balance of trade with India, and the vast sums in gold that were being sent to purchase Indian goods. Some historians have even gone so far as to suggest it was one of the reasons for the decline and fall of the Roman Empire. Certainly it was for some years a contributing factor."

Says L'Amour: "If our civilization should be destroyed now, or should simply die, in five hundred years to a thousand years nothing would remain but a few stone carvings. All of our vaunted machine civilization would have rusted or eroded away and nothing would be left to indicate what we had been and what we had done. Gold alone lasts; silver disappears, as was discoverd in the ruins of UR of the Chaldees."

Because somebody somewhere (not you, apparently) understands the difference between non-essential and unnecessary?

I say we should fire the air traffic controllers and firemen. Afterall, I am not flying and my house is not on fire. Therefore nobody could ever find any use for those people.

Besides, this shutdown is a fraud. Nothing bad will shut down, just the stuff that benefits the public. Legislators will still get their unearned perks, bank bailouts won't be disrupted, the adventures will continue (even if soldiers fighting them aren't paid), etc.

So, seriously, I want anybody who junks this to answer a question for me. If these public employees stay home, do you really think your taxes will go down? Or do you, like me, expect every last dime of the "savings" to be squandered on more bankster bailouts and foreign adventures?

The only fitting description of the US government for the last 13 years is the image of a monkey fucking a football. While initially entertaining, one would hope that the monkey has more than one trick.

Against the desire of most US citizens, they tied us to them with handcuffs, strapped a bomb to our back that they control, and then started pointing the finger at us every time we decide we don't go along with them. All of this is disgusting.

You believe the US elections actually have anything to do with how the American people vote? If so, do you also believe the stock market would be at these levels if not for Ben Bernanke and his printing machine - Because one has everything to do with other. Critical thinking is the first thing lost in a crumbling Nation.

If there are any theoretical physicists on this board, please explain to me how it is even possible for a plane to get off the ground with Moochelle's wide load on board. Or how she can even cram that bulk through the doorway of the plane.

That's easy. One just has to apply a great enough thrust. A modern jet engine should have no problems with that. Don't underestimate the force such machines can deliver. So in short: You just need enough highly energetic fuel ...

FedEx delivers horses and zoo animals via their dc-10s.
Pilots get used to livestock moving in flight, affecting center of gravity of the aircraft, necessitating constant changes to elevator trim settings.
So it can be done.
There are cargo doors for the answer to your second question.

I'm actually a theoretical physicist and a financier, so perhaps I can help. What we've done is go short gravity, rehypothecate lift on a pairs trade, and put Daniel Bernoulli in Guantanamo. All that and a lot of cross control (left ailerons, right rudder) lets AF1 stay airborne, at least on cold days.

The way you guys go on and on about Michelle Obama's backside every chance you get, I can't help but wonder if you are ... a little bit, well ... turned on !! Behind the facade of junior high school ridicule, perhaps there is regret that those (cough cough) other people get the best ass. Just speculatin. Don't tase me bro !!

Blah, Blah, Blah Blah. National news has become a replacement for the demise of daily soap operas. Clever words are coined such as taper and sequester and the ratings skyrocket. This is just another sensationalized story about nothing. The useless turds in DC will "solve" this latest manufactured "crisis" before the next Redskin game. KEEP CALM AND MASTURBATE

Perhaps One Man One Vote would work if taxpayers were only eligible to vote. There is something about having skin in the game that alters the outcome.

Of course most people would vote to increase their personal paychecks. They don't have the foresight or intelligence to see how in doing so destroys the whole system. One should keep hand grenades away from monkeys.

So this great Insolvency Shutdown does what exactly ? The NSA will turn off its computers ? The US Navy will stop fuelling aircraft and put US Marines on half-rations ? They will dim the lights on Capitol Hill ?

This is pantomime to introduce some drama into a moribund and decaying political structure. I bet not one Congressional aide misses a pay check.

In reality, key functions of the government will continue to operate as before even in the event of a “shut down”.
- Federal air traffic controllers will continue to monitor take offs and landings;
- The TSA will still be screening passengers in US airports;
- The US military will stay on duty and many credit unions and banks will cover their Oct. 15 paychecks if they are delayed;
- Embassies and consulates overseas will continue to provide services to American citizens;
- The mail will continue to be delivered;
- Federal courts will continue to operate;
- The US Supreme Court will continue to operate as normal when it resumes on October 7;
- Taxes will continue to be collected;
- Sales taxes will continue to be collected
- Garbage will continue to be collected;
- Visa services for people traveling to the United States will continue to operate;
- US passport applications will continue to be processed normally;
- Green card applications will continue to be processed normally;
- Social Security and Medicare benefits will continue to operate normally;
- The vast majority of Homeland Security employees will stay on the job;
- The vast majority of Coast Guard employees will stay on the job;
- The vast majority of Border Patrol agents will stay on the job;
- The vast majority of Secret Service personnel and other law enforcement agents and officers will stay on the job;
- Schools will stay open;
- The National Weather Service and the National Hurricane Center will continue to issue natural disaster warnings and track storms;
- The Mars Rover will continue to explore the red planet and the International Space Station will continue to operate;
- The District of Columbia passed a $144m contingency fund on Friday to ensure all its services would continue to operate normally;
- Most services managed by the Department of Veterans Affairs will continue.

So all that is going to shut down is the really visible stuff, like closing the National Parks. This is the equivalent of the cessation of White House tours after the sequester. Punish the public for the GOP's failure to concede to Obomber's every whim. It's like we put a child king on the throne and he's on the palace floor in front of his throne kicking and screaming because the council wouldn't let him kick a peasant's donkey in the ass.

I haven't seen any reason in that list as to why I should be corcerned if a few hundred people in Washington take a few days off. I wish they'd shut it down completety so the American people would see that we can get along just fine without them.

Whatever. The US Government will never default (just print into oblivion). The debt ceiling will always be raised at the 11th hour. The government will never 'shut down' for more than is politically necessary to get a point across. It's all political games at this point -- the whole kit and kabooki. We have entered an age with instant communication, where everyone knows immediately when the emperor has no clothes, but no one cares as long as they get their handout. Shameful.

look we are all .gov workers, those of us who pay taxes, most here on zh work for the "man in dc"..and the boss don't take no back talk, and he wants 30% + of every productive cent..the mafia calls it" Protection money"..hmm seems .gov calls it that too, (TSA?HSA?DEPT DEF/EPA/OSHA all for our protection) .gov will protect our freedoms until we all are in jail or are just another brown shirt.

The whole thing is sort of anti climatic anymore. They take off, you get all excited thinking "she's goona run this time" and boom the next day it gets knocked down when some dumb fuck with a mic, probably talking from his gold shitter, makes a comment that sends it into oblivion.

Kind of like when you don't get laid that often, the foreplay is pretty good, your thinking "damn" and then when it's all said and done, "meh, that was ok" and you fall back asleep.

"One main concern of a delay to both a 2014 budget and raising the debt ceiling is the possibility of a credit rating downgrade of the US sovereign"

Delay a 2014 budget? Hell, I'm still waiting for the budgets from 2009, 2010, 2011, 2012, and 2013. But yes, by all means, let's try to preserve the illusion that the gubmint is fiscally responsible by raising the debt ceiling and making it possible for our grandkids to have a seven-figure share of the national debt. Six-figures is so last decade.

Ahhh, but in Monopoly, all players start off on an equal footing. You and I have never been on an equal footing with the elites. If the nation were a real-life version of Monopoly, you and I would start with -$1500 in Monopoly money and the elites would start with hotels on Boardwalk and Park Place.

Life would be so much more peaceful if they would shut it down. Just let the States handle it. Why do we need to throw away money on a bloated mlitary or Boner's pink ties or Obama's love boys. Do you really care what Michelle thinks? Better dead than Reid? MoConnell or O'Donnell. Is there a single "leader" worth following? Is there a single honest banker? Is there a single currency worth holding?

We don't owe our wealth to the government, we have it INSPITE of the government. Our labor is too valuable to give the zionists a percentage of our every transaction for being nothing but evil. We treat dying and diseased animals better. Euthanasia is the kindest action we could perform for the United States Federal government.

right on cue. Just penning paper to clients as a quarterly service and trying to keep it positive by saying doesn't everyone know there is another trillin behind this trillin so everythings ok.

I mean really! It;s just so fucken unbeliwvable that PM's get hamerred in this environment it beggars belief. if you follow the numbers you may notice how contract volumes on the CRIMEX are dwindeling rapidly. No one wants paper gold there either....and still it goes down until there's no gold left in the Western main stream vaults, and by then, the bankers have taken back the worthless miners, as Fonz suggests.

Just as one troubleshoots an electrical circuit by testing each part of the circuit and seeing if it is the one that blows the fuse, lets track the net effects of shutting down government, department by department. My guess is that 80+% of it can be shut down without anyone really noticing. Take just two departments, Dept. of Education and Dept. of Labor. What do they do? Anyone know? Well, let's see if anyone notices their disappearance.

Have either of you looked at a pie chart of what our government spends money on? Discretionary spending, which includes the dept of labor and education, makes up an incredibly small portion of that pie. There are really only three main areas that matter: military, entitlements, and interest. If you don't touch those then you don't do anything that really matters. That doesn't mean that I'm against shutting down useless government agencies, but you have to see the big picture.

The amount going to the military, and interest has already been cut by the sequester. Most entitlements were exempt, with the notable exception of medicare, but the affordable care act is designed to replace that, eventually. Guess those foreign banksters aren't all that after all.

If the fucking government wasn't spending 40% more than they're taking in then, there would be no need to raise the fucking debt ceiling.

Our government needs to live like the rest of us. If you don't make it then, don't spend it. If you can't afford to take out the loan and pay it off, don't take the loan.

We're so far past that....

My father was in WWII and right when he got back, he had my oldest brother.... I guess he could be considered one of the first boomer kids.... He's 62yrs old now... We're going to learn what unfunded liabilities are soon... in a real big way. He and millions of others will retire and demand their benefits that they've been paying into their whole life.

We're about to have a massive amount of boomers retiring starting almost any time now that will strain the already strained system we have.